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THE  SHERMAN  LAW 


Where  It  Has  Failed 
Why  It  Has  Failed 

and    a 
Constructive  Suggestion 


An  address  before  the  Economic  Club 
of    Philadelphia,    Pa.,    May    22,    1915 

By 


TO  THE  READER: 

SIR: — Here  is  a  sequel  to  the  two  articles  by  Mr.  George  W. 
Peridns,— "The    Outlook    for    Prosperity"    and    "The   New 
South  and  the  New  World," — which  have  attracted  wide  at- 
tention among  the  business  men  of  the  United  States.    The  present 
article   contains   Mr.   Perkins'   concrete   proposal   with   regard   to 
possibly  the  most  important  business  issue  of  the  day, — that  of 
anti-trust  legislation. 

Will  you  be  good  enough  to  read  this  article  carefully  and  write 
us  your  opinion  about  it?  In  case  you  desire  what  you  write  to 
be  considered  confidential,  we  shall  so  treat  it;  otherwise  we  shall 
feel  free  to  use  it  for  publication. 

THE  EDITORS, 

The  Market  World, 

80  Wall  Street,  New  York  City. 


THE  SHERMAN  LAW 


Where  It  Has  Failed 
Why  It  Has  Failed 

and   a 
Constructive  Suggestion 


Of 


An  address  before  the  Economic  Club 
of    Philadelphia,    Pa.,    May    22,    1915 

By 
GEORGE  W.  PERKINS 


Reprinted  from 

The  Market  World 

New  York 


FOREWORD. 


Early  in  February  of  this  year  Mr.  George  W.  Perkins 
delivered  an  address  before  The  Economic  Club  of  New 
York  on  "The  Outlook  for  Prosperity."  This  address  was 
published  in  "The  Market  World,"  and  attracted  so  much 
attention  that  it  was  later  republished  in  pamphlet  form  and 
distributed  throughout  the  country  with  a  request  that  read- 
ers of  the  pamphlet  send  us  their  comments  upon  Mr.  Per- 
kins' diagnosis  of  the  American  business  situation. 

On  March  22  we  made  the  following  comment  editorially 
upon  the  results  obtained  through  the  distribution  of  this 
pamphlet  : 

"We  have  simply  been  amazed  at  the  number  and  the 
character  of  the  responses  we  have  received.  They  have 
come  in  by  the  hundreds,  from  business  men  and  students  of 
business  living  in  every  State  of  the  Union  and  engaged  in 
the  most  various  pursuits.  Bankers,  lawyers,  doctors,  clergy- 
men, heads  of  great  railroad  and  industrial  corporations, 
merchants,  manufacturers,  college  professors,  farmers, — all 
these  and  more  have  sent  us  their  expressions  of  opinion,  in 
a  great  number  of  cases  evidently  prepared  with  extreme 
care  and  at  great  length. 

We  went  on  to  say  that  we  should  issue  a  supplement 
containing  the  best  of  these  letters.  After  a  careful  survey 
of  the  material,  however,  it  presently  appeared  that  a  sup- 
plement which  should  convey  even  a  fair  summary  of  the 
letters  received  would  be  too  voluminous  to  be  undertaken. 
There  was,  moreover,  a  further  fact  to  be  taken  into  account. 
A  considerable  number  of  our  correspondents,  while  con- 
curring in  the  views  expressed  by  Mr.  Perkins,  were  anxious 
to  have  a  more  specific  statement  of  remedies  far  the  exist- 
ing situation.  Happily,  Mr.  Perkins  has  been  willing  to 
meet  this  suggestion,  and  the  present  clear  and  concrete 
discussion  of  the  application  of  the  Sherman  Act,  possibly 
the  most  pressing  of  present  day  business  issues,  is  the 
result.  We  commend  it  to  the  attention  of  all  persons,  irre- 
spective of  party,  who  are  willing  to  think  the  problem 
through. 

THE  EDITORS, 

The  Market  World, 

80  Wall  Street,  New  York  City. 


THE  SHERMAN  LAW 

WHERE  IT  HAS  FAILED :    WHY  IT  HAS  FAILED : 
AND  A  CONSTRUCTIVE  SUGGESTION 

By  George  W.  Perkins 

DOUBTLESS  we  will  all  agree  that  at  the  time  the 
Sherman  Law  was  passed  there  was  crying  need 
for  legislation  against  the  evils  that  were  rapidly 
developing  in  the  American  business  world,  and  that  there 
was  ground  for  the  apprehension  of  the  people  regarding 
the  far-reaching  harmful  effects  of  those  evil  tendencies. 

Business  men  were  acquiring  power  to  an  extent  that 
had  previously  been  unknown,  and  in  many  instances  they 
were  using  that  power  for  their  own  personal  profit  and 
aggrandizement  and  to  the  detriment  and  injury  of  their 
fellowmen.  They  were  practicing  secretive  business  meth- 
ods, beating  down  competitors,  and  forcing  them  to  choose 
between  bankruptcy  or  entering  a  combination  on  terms 
which  were  very  unfair.  This  was  clearly  the  tendency  of 
the  times,  and  legislation  to  check  and  prevent  it  was  im- 
perative. 

A  Bad  Means  to  a  Good  End. 

With  this  most  desirable  end  in  view,  the  Sherman  Law 
was  passed  in  1890.  The  object  of  the  legislators  was  com- 
mendable ;  the  results  attained  have  been  lamentable,  for 
no  intelligent,  thoughtful  man  can  look  back  over  the  inter- 
vening twenty-five  years  and  conscientiously  say  that  the 
law  that  was  passed  was  the  kind  of  a  law  that  should  have 
been  enacted  to  achieve  the  reforms  so  greatly  needed. 

During  these  twenty-five  years  men  have  continued  to 


acquire  power  to  an  extent  little  dreamed  of  when  the 
Sherman  Law  was  passed,  and  have  continued  to  use  it 
for  their  own  selfish  purposes  and  to  the  detriment  of  the 
public  welfare.  Evil  practices  in  business  have  been  per- 
sistently followed  that  have  been  most  damaging  in  their 
effects  on  the  public  welfare  and  most  beneficial  in  their 
pecuniary  reward  to  a  few  individuals.  All  this  has  been 
taking  place  with  the  Sherman  Law  on  the  books. 

That  the^Shexman  Law-has  been  a  failure  from  the  be- 
ginning is  proved  by  the  events  that  have  occurred  since  its 
passage.  In  the  first  place,  for  a  number  of  years  it  was 
practically  a  dead  letter.  During  this  time  the  organization 
of  corporations  through  consolidations  and  mergers  went  on 
at  a  rapid  rate,  and  evil  practices,  and  oppressive  methods 
cropped  out  on  every  hand,  until  the  country  rose  up  in 
mass  against  them.  This  situation  reached  a  climax  in  the 
Roosevelt  Administration,  when  suits  were  brought  against 
some  of  our  largest  industrial  organizations.  At  the  same 
time  the  Department  of  Commerce  and  Labor  was  estab- 
lished and  given  power  to  investigate  our  large  industrial 
concerns.  President  Roosevelt  used  this  department  for 
such  investigations  and  declared  his  belief  that  there  were 
good  and  bad  trusts.  He  said  that  he  proposed  to  bring 
suits  against  what  he  called  "bad  trusts,"  but  not  against 
what  he  termed  "good  trusts."  The  Department  of  Com- 
merce and  Labor  pursued  its  investigations  and  made  vari- 
ous reports.  In  many  addresses  and  messages  Mr.  Roosevelt 
declared  his  belief  that  large  industrial  corporations  had 
come  to  stay,  but  that  their  affairs  must  be  so  administered 
that  they  would  be  a  benefit  and  not  a  menace  to  our 
people. 

What  the  Republican  Party  Promised. 

This  condition  existed  in  1908,  when  Mr.  Taft  was  nomi- 
nated for  the  Presidency.  The  platform  on  which  he  was 


nominated  contained  Mr.  Roosevelt's  views  on  the  trust 
question,  which  were  expressed  in  the  following  plank  of 
the  Taft  platform  : 

"Trusts.     The  Republican^Party  passed  the  Sher- 
"man  Anti-Trust  Law  over  Democratic  opposition  and 
"enforced  it  after  Democratic  dereliction.    It  has  been 
"a  wholesome  instrument  for  good  in  the  hands  of  a 
"wise  and  fearless  administration.    But  experience  has 
"shown  that  its  effectiveness  can  be  strengthened  and 
"its  real  objects  better  attained  by  such  amendments  as 
"will  give  to  the  Federal  Government  greater  supervi-  \ 
<fslbn  and  control  over  and  secure  greater  publicity  in  I 
"the  management  of  that  class  of  corporations  engaged  1 
"in  interstate  commerce  having  power  and  opportunity  I 
"to  effect  monopolies.'' 

A  few  weeks  later   Mr.   Bryan  was  nominated  on  the 
pjatfnrm,  the  trust  plank  of  which,  among  other 


things,  declared  for  a  policy  that  would  grojiihit  the  control 
by  a  "manufacturing  or  trading  corporation,  engaged  in 
interstate  commerce,"  "of  more  than  fifty  per  cent  of  the 
total  amount  of  any  product  consumed  in  the  United  States." 
The  Presidential  compaign  of  1908  followed,  and  the 
widely  differing  views  of  the  Republican  and  Democratic 
Parties  on  the  trust  question,  as  represented  by  these  two 
planks,  were  vigorously  debated  throughout  the  country. 
Probably  the  greatest  and  most  effective  speech  of  that 
entire  campaign  was  Governor  Hughes'  speech  at  Youngs- 
town,  Ohio,  wherein  he  utterly  demolished  Bryan's  50  per 
cent  theory  and  pointed  out  the  absolute  chaos  that  would 
follow  in  business  if  any  such  standards  of  right  and  wrong, 
or  efficiency,  \vere  set  up, 

How  the  Promise  Was  Broken. 

The  planks  went  to  the  voters  of  the  country  and  the 
Republican  plank  was  adopted  by  an  overwhelming  vote  .  The 


Taft  Administration  entered  office;  but  in  place  of  making 
any  determined,  persistent  effort  to  have  its  plank  enacted 
into  law  it  allowed  matters  to  drift  until  decisions  in  the 
Standard  Oil  and  Tobacco  cases  were  handed  down  by  the 
Supreme  Court.  Then  Mr.  Taft  and  his  associates  deliber- 
ately and  completely  abandoned  the  trust  plank  of  their 
platform  by  immediately  proclaiming  that  "dissolution  is 
the  solution  of  the  trust  question."  In  other  words,  the 
Taft  Administration  deliberately  repudiated  the  plank  of  its 
own  platform,  which  had  been  so  overwhelmingly  endorsed 
by  the  people,  and  adopted  the  plank  of  the  Bryan  platform, 
which  had  been  rejected  by  the  people ;  and  with  eagerness 
and  enthusiasm  the  Taft  Administration  proceeded  to  dis- 
solve the  Standard  Oil  and  Tobacco  Companies  into  a  large 
number  of  small  units,  telling  the  people  what  great  benefits 
would  follow  therefrom.  Every  man  in  this  country  knows 
what  did  follow,  viz.,  largely  increased  profits  to  inside 
stockholders  and  largely  increased  prices  of  commodities  to 
outside  consumers. 

In  spite  of  this  farcical  result  the  Taft  Administration 
brought  many  other  dissolution  suits,  notably  against  the 
Steel  Corporation  and  the  Harvester  Company.  Business 
conditions  became  more  and  more  demoralized  and  business 
men  became  more  and  more  uncertain  as  to  what  they  could 
or  could  not  do.  Gradually  capital  became  timid  and  retir- 
ing, and  for  four  years  we  have  seen  a  period  of  semi- 
stagnation  in  business  development  in  this  country.  Gentle- 
men, this  is  directly  traceable  to  the  Taft  Administration 
and  wholly  chargeable  to  its  utter  failure  to  keep  the  pledge 
it  made  to  thfe  people  in  the  trust  plank  of  its  1908  platform. 
Had  it  kept  its  own  pledge,  instead  of  keeping  the  pledge  of 
the  Bryan  platform,  the  business  atmosphere  would  have 
been  cleared  of  all  doubt  and  business  would  have  known 
along  just  what  lines  it  could  proceed.  In  addition,  the 
people  would  have  been  protected  from  the  evils  from  which 


they  were  and  still  are  suffering,  by  a  law  that  would  have 
given  "to  the  Federal  Government  greater  supervision  and 
control  over  and  secured  greater  publicity  in  the  manage- 
ment of  that  class  of  corporations  engaged  in  interstate 
commerce  having  power  and  opportunity  to  effect  mo- 
nopolies." 

The  Democratic  Attempt 

The  Wilson  Administration  then  came  into  power.  It 
evidently  f elf ,"as  the  Republicans  did  in  1908,  that  the  Sher- 
man Law  was  not  satisfactory  and  that  it  must  tackle  the 
trust  question,  and  so  it  passed  the  Clayton  Bill,  which 
should  more  properly  be  called  the  muddle  bill,  as  in  my 
judgment  it  will  simply  add  to  the  present  confusion.  It 
also  passed  the  Federal  Trade  Commission  Law,  which  is  a 
very  poor  law  with  a  very  good  name.  The  idea  of  estab- 
lishing a  Federal  Trade  Commission  is  excellent  but  under 
this  law  the  Commission  will  find  itself  powerless  to  do  the 
things  that  are  necessary.  However  commendable  may  be 
the  intentions  of  the  gentlemen  on  the  Commission,  between 
the  Sherman  Law  and  the  Clayton  Bill  they  will  find  them- 
selves "  'twixt  the  devil  and  the  deep  sea."  Again  it  seems 
to  me  that  our  lawmakers  have  failed  to  accurately  diagnose 
the  situation.  They,  as  Democrats,  seemed  to  realize  in  1914, 
as  did  the  Republicans  in  their  platform  of  1908,  that  some- 
thing was  wrong  or  lacking  in  the  Sherman  Law ;  but,  either 
through  ignorance  or  lack  of  courage  or  for  a  poorer  reason, 
our  Democratic  friends  have  failed  to  meet  the  issue  squarely 
and  settle  it  intelligently  and  in  keeping  with  modern  eco- 
nomic and  moral  requirements. 

In  the  meantime,  while  the  Clayton  Bill  was  being  de- 
bated in  Congress  and  enacted  into  law,  we  had  two  trust 
case  decisions  by  two  Courts  of  equal  rank  and  only  ex- 
ceeded in  power  by  the  Supreme  Court  itself.  I  refer  to  the 
Harvester  decision  and  the  Keystone  Watch  Case  decision. 


The  Bewildering  Course  of  the  Courts. 

In  the  Government  suit  to  dissolve  the  International 
Harvester  Company  the  United  States  District  Court  for 
the  District  of  Minnesota  a  short  time  ago,  by  a  divided 
vote,  handed  down  a  decision  dissolving  that  company  on 
the  ground  that  it  had  acquired  too  large  a  percentage  of  the 
business  in  which  it  was  engaged;  yet  all  the  judges  who 
joined  in  the  decision  gave  the  company  a  clean  bill  of 
health  as  to  its  conduct  and  even  went  so  far  as  to  -criticize 
the  Government  for  charging  that  the  company  had  im- 
properly conducted  its  business. 

Its  exact  language  on  this  point  is  as  follows : 

"It  is  but  just,  however,  to  say  and  to  make  it  plain 
"that  in  the  main  the  business  conduct  of  the  company 
"towards  its  competitors  and  the  public  has  been  hon- 
"orable,  clean  and  fair.  And  in  this  connection  it 
"should  also  be  said  that  specific  charges  of  miscon- 
"duct  were  made  in  the  Government's  petition  which 
"found  no  warrant  whatever  in  the  proof.  These  were 
"of  such  a  character  and  there  was  so  much  of  them, 
"apparently  without  foundation,  that  the  case  is  excep- 
tional in  that  particular." 

Again,  only  a  few  weeks  ago,  the  United  States  District 
Court  for  the  Eastern  District  of  Pennsylvania, — a  court  of 
precisely  the  same  standing  and  power  as  the  court  that  de- 
cided against  the  Harvester  Company, — handed  down  a 
unanimous  decision  refusing  to  dissolve  the  Keystone 
Watch  Case  Company  because  it  had  acquired  a  large  per- 
centage of  the  business  in  which  it  was  engaged;  yet  all 
the  judges  agreed  that  the  Watch  Case  Company  had  been 
guilty  of  a  few  improper  practices,  but  that  these  could  and 
should  be  reached  by  governmental  injunction  and  not  by 
governmental  dissolution. 

Here  we  have  two  Courts  of  precisely  the  same  power 
and  jurisdiction  handing  down  decisions  under  the  Sherman 

8 


Law  that  are  exactly  opposite  in  character.  Since  these  de- 
cisions both  cases  have  been  carried  to  the  Supreme 
Court.  When  the  Harvester  case  was  before  the  Circuit 
Court  it  was  argued  by  a  Republican  Attorney  General,  who 
laid  great  stress  on  the  fact  that  the  company  had  been 
guilty  of  all  sorts  of  improper,  immoral  practices.  As  I 
have  shown,  the  Government  was  practically  thrown  out  of 
court  on  all  these  charges.  The  present  Democratic  Attor- 
ney General,  in  arguing  the  case  before  the  Supreme  Court, 
admitted  that  the  Harvester  Company  had  been  honorably 
managed  and  conducted,  but  set  up  the  contention  that  the 
company  is  illegal  under  the  Sherman  Law  because  of  the 
manner  in  which  it  was  organized,  and  the  resultant  large 
percentage  of  business  it  has ;  that  if  it  had  grown  naturally 
from  a  single  small  company  to  its  present  pre-eminence  it 
would  have  been  legal,  but  that,  as  it  was  formed  through 
the  consolidation  of  several  companies  doing  similar  lines 
of  business,  it  was  illegal. 

The  following  astonishing  situation  has  developed  in  the 
suit,  viz.,  the  judges  of  the  Circuit  Court  said  that  during 
the  first  two  or  three  years  of  the  existence  of  the  Har- 
vester Company  there  were  certain  improper  practices,  but 
that  these  were  inherited  from  the  small  companies  and 
eradicated  by  the  large  company  as  soon  as  possible.  Yet 
this  same  Court,  by  a  divided  vote,  decreed  that  the  Har- 
vester Company  should  be  dissolved.  The  present  Democratic 
Attorney  General  asks  the  Supreme  Court  to  do  the  same 
thing;  therefore,  both  the  Circuit  Court  and  the  Attorney 
General  are,  in  effect,  asking  that  the  Harvester  business  be 
returned  to  the  conditions  under  which  it  was  conducted  by 
the  small  companies,  which  companies  the  Court  itself  says 
were  guilty  of  immoral  practices.  Do  the  Circuit  Court 
and  the  Democratic  Attorney  General  mean  to  take  the 
position  that  a  number  of  small  competing  companies  doing 
an  immoral  business  would  be  complying  with  the  Sherman 


Law,  while  a  large  co-operative  company,  doing  an  admit- 
tedly moral  business,  would  be  violating  the  Sherman  Law? 
Such  a  position  would  put  our  legal  friends  on  record  as 
believing  that  the  interest  and  welfare  of  our  people  are 
more  dependent  upon  a  vindication  of  legal  technicalities 
than  upon  moral  actualities  and  economic  necessities. 

What  Is  Certain  About  the  Sherman  Law. 
The  only  certainty  about  the  Sherman  Law  seems  to 
be  the  absolute  uncertainty  that  surrounds  its  interpretation ; 
but  if  the  law  means  what  the  Taft  and  Wilson  Administra- 
tions tell  us  it  means,  then  it  stands  for  a  strict  mainten- 
ance of  old-fashioned,  ruthless,  competitive  methods  in  busi- 
ness, with  all  their  well  known  abuses  and  evils,  and 
squarely  against  modern  co-operative  methods.  If  this  be 
true,  then  the  law  is  out  of  tune  with  the  times  in  which  we 
live,  is  morally  and  economically  unsound,  and  cannot  endure. 

The  Disease  Wrongly  Diagnosed. 

I  believe  I  am  correct  in  saying  that  we  have  at  last 
reached  a  point  where  the  Sherman  Law,  as  it  stands,  is 
not  satisfactory  to  the  business  world  whose  improper  activi- 
ties it  was  supposed  to  curb,  nor  to  the  great  mass  of  the 
people  in  whose  interest  and  for  whose  protection  it  was 
enacted.  The  question  arises  as  to  why  this  is  so,  and  I 
believe  the  answer  is  found  in  the  fact  that  the  men  who 
drew  the  law  failed  to  diagnose  the  disease  correctly  and 
therefore  prescribed  the  wrong  medicine.  They  saw  the 
results  of  the  disease,  but  they  failed  to  understand  the  cause 
of  the  disease.  They  saw  individuals  and  small  groups  of 
men  suddenly  acquiring  vast  and  unheard-of  power  in  the 
business  world,  and  they  knew  that  such  vast  power  had 
never  before  been  acquired.  They  knew  that  these  men 
were  using  their  power  for  personal  gain  and  public  detri- 
ment. They  seemed  to  think  that  there  had  been  suddenly 
created  a  different  type  of  man  than  had  ever  lived  be- 

10 


fore, — a  sort  of  superman  endowed  with  qualities  that 
made  it  possible  for  him  to  do  these  extraordinary  things 
in  business  that  were  so  profitable  to  him  and  so  detri- 
mental to  his  fellowmen.  They  saw  him  building  up  vast 
business  machines  that  reached  out  in  every  direction.  They 
saw  him,  through  these  machines,  oppressing  his  competi- 
tor, maltreating  his  labor,  imposing  on  his  consumers,  and 
they  sought  to  strike  at  it  all  by  passing  a  law  that  they 
thought  would  make  it  impossible  for  him  to  create  these 
large  machines. 

Steam  and  Electricity  Change  the  Fundamentals  of 
Business. 

Xow,  as  I  have  said,  these  men  failed  utterly  to  under- 
stand the  cause  of  the  new  disease,  for  the  cause  did  not  lie 
in  the  fact  that  a  superman  had  suddenly  been  created,  a 
man  with  greater  ability  than  any  man  had  ever  had  before ; 
the  cause  lay  in  the  fact  that  our  ordinary,  every-day  busi- 
ness man,  the  same  type  that  existed  twenty-five  or  fifty 
years  before,  had  suddenly  been  given  by  our  inventors  de- 
vices and  machinery  with  which  to  do  business  that,  in 
themselves,  centralized  business  activities  and  made  vast 
business  concerns  and  undertakings  possible  for  the  first 
time  since  the  world  began.  Steam  and  electricity  in  their 
many  forms  are  what  have  made  the  corporation, — what  have 
made  centralization  in  industry  possible  and  inevitable.  The 
Sherman  Law  has  been  utterly  unable  to  prevent  this  evo- 
lution ;  and  centralization  and  consolidation  have  forged 
ahead  in  all  forms  of  business  life  in  spite  of  the  Sherman 
Law,  because  that  law  did  not  and  could  not  strike  at  the 
causes  that  were  bringing  about  this  wonderful  transforma- 
tion in  business  methods  and  opportunities. 

If  the  men  who  passed  the  Sherman  Law  had  properly 
diagnosed  the  situation  and  had  realized  the  great  new 
causes  that  were  at  that  time  manifesting  themselves  in  the 

II 


business  world,  they  would  have  known  that  the  Sherman 
Law,  as  passed,  could  not  possibly  accomplish  the  results 
desired,  for  the  following  reasons: 

First :  Because  with  steam  and  electricity  it  was  inevit- 
able that  we  should  have  large  business  units; 

Second:  Because  with  large  business  units,  men,  still 
being  human  and  selfish,  would  abuse  the  power  that  large 
business  units  gave  them ; 

Third :  Because  the  only  way  to  protect  the  people  from 
the  evils  that  were  developing  was  to  permit  the  organiza- 
tion of  large  business  units,  since  they  were  inevitable,  but 
to  supervise  and  regulate  the  acts  and  conduct  of  the  men 
who  manage  them  through  some  power  broader  and  stronger 
than  the  units  themselves,  doing  this  in  such  a  way  as  to 
preserve  for  the  people  the  advantages  to  be  had  from  doing 
business  on  a  large  scale  and  at  the  same  time  to  protect 
the  people  from,  the. evils  arising  from  large  power  in  the 
hands  of  unscrupulous  men. 

A  Constructive  Suggestion. 

Had  a  correct  diagnosis  been  made,  the  framers  of  the 
Sherman  Law7  would  have  drafted  a  very  different  law,  and 
in  my  judgment  it  would  then  have  been  and  to-day  should 
be  along  the  following  general  lines: 

First :  The  establishment  by  the  Federal  Government  of 
a  competent  business  court,  board  or  commission,  with 
power  to  create  interstate  and  international  industrial  cor- 
porations ; 

Second:  Requiring  that  any  group  of  men  desiring  to 
organize  a  business  concern,  intending  to  do  business  in  our 
various  States  and  in  foreign  countries,  go  to  this  court  in 
Washington  and  obtain  a  charter; 

Third :  Requiring  that  before  the  granting  of  any  such 
charter  the  business  court  or  commission  should  be  con- 
vinced that  the  proposed  business  undertaking  was  to  be 

12 


conducted  in  the  public  interest  and  that  it  was  not  to  re- 
strain trade  or  acquire  private  monopoly ; 

Fourth:  Requiring  full  publicity  as  to  the  operations  of 
the  company,  for  the  information  of  the  business  court 
that,  as  the  company  proceeded  with  its  business,  the  court 
might  be  sure  that  it  was  not  improperly  restraining  trade 
or  acquiring  monopoly ;  and  for  the  protection  of  the  public, 
whose  money  and  labor  were  to  be  employed  and  whose 
consumers  were  to  be  served ; 

Fifth  :  Requiring  that  capitalization  be  honest  and  legiti- 
mate and  represent  a  proper  value  for  every  dollar  issued 
in  securities; 

Sixth :  Requiring  that  violation  of  the  law  or  the  rules 
and  regulations  of  the  court  be  punishable  with  imprison- 
ment of  individuals,  exactly  as  is  the  case  with  National 
banks,  whose  officers,  when  guilty  of  wrong-doing,  are  pun- 
ished without  disturbing  the  activities  of  the  bank.  There 
should  be  no  more  thought  of  dissolving  a  large  properly 
conducted  interstate  and  international  business,  in  which 
many  thousands  of  people  are  interested  as  stockholders, 
employes  and  customers,  than  of  dissolving  a  threat  National 
bank  because  an  officer  has  done  something  wrong.  Such 
a  step  should  be  the  very  last  one  resorted  to.  Bad  prac- 
tices should  be  reached  and  eradicated  either  by  indicting 
individuals  or  by  injunction. 

Evils  Remedied  by  Such  a  Law. 

Had  such  a  law  as  this  been  passed,  with  stringent  regu- 
lations against  private  monopoly  and  with  power  given  to 
such  a  court  to  see  to  it  that  large  corporations  did  not 
use  their  power  to  restrain  trade  but  did  use  it  to  develop 
trade,  business  would  have  prospered  far  more  and  the  peo- 
ple would  have  been  protected  far  more. 

For  example :  Undoubtedly  one  of  the  greatest  evils 
from  which  the  people  of  this  country  have  suffered  since 

13 


the  Sherman  Law  was  passed  has  been  the  stock  watering 
and  stock  jobbing  operations  that  have  been  carried  on  in 
the  organizing  and  financing  of  corporations.  The  Sher- 
man Law  never  has  protected  and  the  Clayton  Bill  does  not 
now  protect  the  people  against  this  great  evil. 

The  people  have  also  suffered  from  secretive,  blind-pool 
methods,  made  possible  through  a  lack  of  proper  and  bona 
fide  publicity  as  to  how  corporations  were  conducting  their 
business.  A  few  insiders  have  had  inside  information,  but 
the  stockholders,  the  employes  and  the  public  have  had  little 
or  no  information,  or  else  very  often  incorrect  or  misleading 
information.  Nothing  in  the  Sherman  Law  has  in  any  way 
protected  the  public  from  all  these  serious  and  costly 
evils. 

Constructive,  Not  Destructive,  Action  Required. 

There  is  a  vast  difference  between  restraint  of  trade  and 
expansion  of  trade,  and  this  difference  varies  according  to 
the  nature  of  the  business.  It  is  utterly  impossible  to  define 
it  in  any  one  law  so  that  it  will  cover  all  forms  of  business. 
We  can  never  properly  handle  this  important  question  ex- 
cept through  a  permanent  court  or  commission  that  will 
have  broad  powers  and  discretion  in  the  matter.  As  it 
stands  to-day,  no  business  man,  no  lawyer,  no  judge,  no 
court  has  been  able  to  define  it ;  and  if  the  Supreme  Court  in 
the  important  industrial  cases  now  coming  before  it  is  able 
to  define  it  in  those  particular  cases,  the  rulings  will  not 
necessarily  apply  to  other  concerns  doing  business  under 
different  conditions  and  in  entirely  different  lines  of 
trade. 

Furthermore,  it  is  of  the  utmost  importance  in  this 
matter  of  restraint  of  trade  that  a  company  should  know 
what  it  can  do  and  what  it  cannot  do,  before  it  starts  in 
business.  It  should  not  be  required  to  start  in  business  and 
then  go  through  the  various  courts  up  to  the  Supreme 


Court,  and  spend  from  two  to  ten  years  and  large  sums  of 
money  in  order  to  find  out  whether  it  is  a  legal  or  an  illegal 
concern. 

The  Rule  of  Reasonableness. 

As  regards  the  question  of  monopoly,  the  situation  is 
just  as  serious.  Our  lawyers  and  our  courts  and  a  vast  num- 
ber of  our  people  have  of  late  years  been  sadly  confusing 
pre-eminence  with  monopoly.  A  concern  may  be  pre-emi- 
nent in  its  line  of  trade  without  being  monopolistic.  For 
instance,  Corporation  A  may  have  but  a  comparatively  small 
percentage  of  the  business  in  a  given  line  of  trade,  and  yet 
through  patents,  secretive  methods  and  lack  of  publicity 
regarding  its  affairs,  may  actually  exert  a  more  dominating 
influence  in  its  trade  than  Corporation  B,  which  does  a  much 
larger  business  but  has  no  patents  and  is  open-handed  as  to 
its  methods  and  practices  full  publicity  as  to  its  conduct. 
Although  a  concern  may  have  a  very  large  percentage  of  the 
business  in  a  given  line  of  manufacture,  it  surely  cannot  be 
accused  of  having  a  monopoly  provided  it  has  no  patents 
and  no  control  of  raw  material  or  any  other  advantage  that 
cannot  be  immediately  obtained  by  any  one  else  in  the 
business  or  who  desires  to  enter  the  business.  Again,  a  con- 
cern that  has  only  a  moderate  percentage  of,  say,  all  the  coal 
in  the  country,  might  easily,  under  certain  forms  of  organ- 
ization and  directed  by  a  certain  kind  of  men,  actually  exer- 
cise all  the  powers  and  practice  all  the  abuses  that  go  with 
private  monopoly. 

A  Practicable  Plan. 

Our  people  should  not  and  will  not  stand  for  restraint  of 
trade;  they  should  not  and  will  not  stand  for  private  mo- 
nopoly; but  what  constitutes  restraint  of  trade  and  what 
constitutes  private  monopoly  cannot  be  written  down  spe- 
cifically in  any  law  in  such  a  way  as  to  be  applicable  to 
each  and  every  business  concern  in  each  and  every  line  of 

15 


trade.  This  cannot  possibly  be  done  through  legislation,  and 
the  Supreme  Court  cannot  possibly  do  it  by  interpretation. 
Here  is  where  the  rule  of  reason  should  be  applied,  and  it  is 
necessary  to  have  it  applied  by  some  Federal  body  before 
a  corporation  is  organized,  and  not  by  the  Supreme  Court 
after  the  corporation  is  organized  and  after  years  of  litiga- 
tion. It  must  be  applied  by  a  court,  a  board  or  a  commission 
created  by  Federal  authority  and  having  very  broad  powers 
— powers  that  can  be  exercised  along  both  permissive  and 
prohibitive  lines;  powers  that  will  permit  the  application 
of  the  rule  of  reason  to  what  is  restraint  of  trade 
and  what  is  monopoly,  what  is  destructive  competition  and 
what  is  constructive  co-operation.  It  seems  to  me,  there- 
fore, that  the  only  sane  and  common  sense  plan  under  which 
our  government  can  operate,  with  freedom  to  business  and 
with  protection  to  the  people,  is  the  one  which  I  have  just 
outlined. 

Even  though  the  question  of  restraint  of  trade  or  monop- 
oly were  not  involved  in  any  way,  some  such  plan  should 
be  adopted,  for  the  following  all-sufficient  reason :  When  a 
group  of  men  seek  to  do  a  large  business  they  require  more 
than  their  own  capital ;  they  require  more  capital  than  they 
can  obtain  locally  from  people  whom  they  know  and  who 
know  them.  They  therefore  seek  capital  from  investors 
throughout  our  country  and  throughout  the  world,  people 
whom  they  do  not  know  and  never  see,  people  who  have  to 
take  everything  on  faith.  This  is  also  largely  true  of  the 
labor  they  employ  and  the  customers  they  serve.  This  be- 
ing so,  such  men  become  in  a  very  real  sense  public  servants 
and  business  trustees.  They  occupy  much  the  same  position 
towards  investors  that  bankers  do.  Investors  in  large  in- 
dustrial enterprises  deposit  their  money  with  the  man- 
agers of  such  enterprises  for  safe-keeping  and  interest 
returns,  just  as  they  do  with  banks.  Banks  are  required  to 
make  complete  public  exhibits  of  their  condition  and  they 

16 


are  controlled  by  the  Federal  Government.  This  is  done 
for  the  protection  of  the  people  for  whose  money  they  are 
custodians.  Our  large  industrial  units  should  be  chartered 
and  then  regulated  by  the  Federal  Government  in  the  same 
manner  and  for  precisely  the  same  reason. 

As  some  of  you  may  know,  I  have  been  advocating  this 
plan  for  many  years.  I  first  publicly  spoke  for  it  and  urged 
it  in  an  address  at  Columbia  College  seven  years  ago  last 
February.  Every  development  from  that  day  to  this  has, 
in  my  judgment,  shown  the  futility  of  any  other  course. 

Federal,  Not  State,  Control  Required. 

To-day  a  company  wishing  to  do  a  great  interstate  busi- 
ness gets  its  charter  from  some  one  of  our  States.  If  it 
does  not  like  the  Seven  Sisters  of  Xew  Jersey  it  goes  to 
Delaware;  if  it  does  not  like  the  laws  of  Delaware  it  goes 
somewhere  else.  Wherever  it  goes,  after  it  gets  its  char- 
ter, the  State  pays  little  or  no  attention  to  how  it  does  its 
business.  Xo  State  is  powerful  enough  or  has  jurisdiction 
broad  enough  to  follow  the  ramifications  of  one  of  these 
great  companies.  Xeither  is  its  jurisdiction  wide  enough  to 
be  helpful  to  one  of  those  great  companies  when  the  com- 
pany wishes  to  go  abroad  and  get  concessions  for  business. 
A  Federal  Incorporation  Law,-  would  be  beneficial  to  our 
industrial  companies  not  only  through  making  it  unneces- 
sary for  them  to  comply  with  forty-eight  conflicting  State 
laws,  but  in  helping  them  in  the  development  of  foreign 
trade ;  and  it  would  be  helpful  to  our  people  because  the 
Federal  Government  would  possess  authority  broad  enough 
to  properly  regulate  and  control  the  operations  of  such 
companies  and  require  publicity  so  full  and  complete  as  in 
itself  to  be  a  guarantee  against  improper  business  practices. 

There  is  one  great  good  that  has  come  out  of  the  Sher-        n 
man  Law  and  that  is  the  agitation  it  has  caused, — the  agita- 
tion on  the  question  of  what  is  moral  or  immoral  in  business. 

17 


This  agitation  has  continued  until  a  higher  standard  of  busi- 
ness morals  has  unquestionably  arisen  in  this  country  dur- 
ing the  last  ten  years.  Men  of  large  business  affairs  have 
recognized  their  responsibility  to  the  public,  to  their  stock- 
holders, to  labor,  to  consumer.  A  few  of  these  large  con- 
cerns have  even  gone  so  far  as  to  take  the  public  fully  into 
their  confidence,  publishing  complete  annual  reports  and 
transacting  their  business  in  the  open  and  on  the  square. 
All  this  is  very  good  as  far  as  it  goes,  but  we  must  not  for- 
get that  it  has  been  done  voluntarily  by  a  comparatively  few 
men  who  have  been  far-sighted  enough  to  believe  that  it 
was  not  only  right  but  good  business  policy.  This,  how- 
ever, is  not  as  it  should  be.  It  should  be  done  under  Federal 
law  and  requirement.  The  people  should  not  be  asked  to 
accept  it  as  a  favor  from  a  few  managers  or  a  few  corpora- 
tions; they  should  know  that  they  receive  it  from  all  man- 
agers and  all  corporations  as  their  right, — a  right  provided 
for  them  and  guaranteed  to  them  by  their  Federal  Govern- 
ment. Capitalizing  companies  without  stock  watering, 
publishing  statements  that  mean  full  publicity  and  honor- 
able conduct  towards  competitors  and  consumers  should 
be  required  by  law  and  regulation.  The  people  know  that 
they  are  entitled  to  all  these  things,  and  they  believe  that 
legal  and  administrative  machinery  should  exist  that  would 
positively  guarantee  them.  It  should  not  be  left  to  the  mere 
whim  or  opinion  of  a  certain  set  of  directors  or  officers  who 
happen  to  be  temporarily  in  charge  of  the  affairs  of  a  large 
interstate  corporation. 

Business  Consolidations  Natural,  Not  Criminal. 

The  latest  argument  among  our  legal  governmental 
friends  is  that  the  Sherman  Law  does  not  strike  at  pre- 
eminence if  such  pre-eminence  is  attained  through  natural 
growth;  but  that  it  does  strike  at  pre-eminence  obtained 
suddenly  through  consolidations. 

18 


These  legal  friends  unfortunately  are  not  business  men. 
They  have  not  been  through  the  gruelling  experience  of 
the  changing  necessities  of  the  business  world,  changes  that 
affect  business  methods  throughout  the  world  and  which 
must  be  met  promptly  if  business  is  to  succeed  and  people 
are  to  prosper.  They  depend  almost  wholly  on  their  text- 
books, on  precedents.  Their  look  is  naturally  backward, 
while  the  business  man's  look  must  necessarily  be  for- 
ward. 

Consolidations  came  about  through  natural  causes.  The 
so-called  trusts  have  not  made  the  times;  the  times  have 
made  the  trusts.  A  revolution  in  business  methods  was 
wrought  when  the  telephone,  the  telegraph,  the  wireless, 
and  steam  with  all  its  appliances  came  into  the  hands  of  the 
business  man.  Things  could  then  be  done  in  a  few  moments 
that  could  not  be  done  in  a  month  in  the  past.  New  oppor- 
tunities for  great  undertakings  suddenly  presented  them- 
selves. Business  men  had  to  take  advantage  of  these  op- 
portunities at  once  if  prosperity  was  to  follow.  Advantage 
had  to  be  taken  of  them  if  success  in  international  trade  was 
to  be  ours.  There  was  no  time  to  be  lost ;  precedents  of  all 
kinds  had  to  be  abandoned;  there  was  not  time  to  wait  for 
a  concern  to  grow  naturally  and  slowly  as  it  had  in  the  past. 
Opportunities  must  be  seized  when  they  present  themselves. 
It  was  the  need  of  the  hour,  the  need  forced  on  American 
business  men  through  new  opportunities,  that  brought  about 
the  method  of  creating  large  companies  by  consolidation 
rather  than  by  natural  growth.  This  all-important  fact 
seems  to  have  been  wholly  overlooked  by  our  legal  friends. 
Again  I  say,  the  trusts  have  not  made  the  times;  the  times 
have  made  the  trusts. 

The  Consolidation  Known  as  the  United  States. 

The  present  Attorney  General,  Mr.  Gregory,  in  his  argu- 
ment before  the  Supreme  Court  two  or  three  weeks  ago 

19 


argued  that  the  International  Harvester  Company  should 
be  ordered  dissolved  by  the  Supreme  Court  solely  because 
it  was  an  organization  formed  out  of  several  smaller  organ- 
izations in  a  similar  line  of  business,  and  that  this  is  what 
the  Sherman  Law  requires.  How  fortunate  that  the  Sher- 
man Law  was  not  in  existence  when  this  country  of  ours 
was  organized!  How  fortunate  that  Mr. -Gregory  was  not 
the  legal  adviser  of  our  people  at  that  time,  for  had  such 
been  the  case  our  thirteen  original  States  could  never  have 
consolidated  into  the  United  States  of  America.  Our  coun- 
try itself  was  formed  through  consolidation  and  has  been 
fostered  through  absorption.  If  Mr.  Gregory's  contention 
and  his  interpretation  of  the  Sherman  Law  are  correct,  our 
forefathers  were  all  wrong.  They  should  have  allowed  the 
State  of  Massachusetts  to  just  grow  naturally  until  it  had 
acquired  pre-eminence  in  the  governmental  affairs  of  this 
country;  and  if  this  were  impossible  or  too  slow  a  process 
then  we  should  have  had  forty-eight  separate  governments 
in  this  country,  all  competing  with  one  another. 

Churches  grow  larger  through  consolidation;  schools 
and  universities  grow  larger  through  consolidation ;  all  sorts 
of  small  stores  have  been  consolidated  into  big  department 
stores;  telegraph,  telephone  and  railroad  companies  have 
not  grown  naturally — they  have  grown  through  absorption 
and  consolidation.  In  short,  the  enormous  opportunities 
brought  by  the  age  of  steam  and  electricity  demanded  large 
business  units  quicker  than  they  could  be  produced  through 
natural  growth,  and  the  only  way  to  produce  them  was 
through  consolidation.  Banks  of  all  kinds  have  grown 
larger  through  consolidation.  The  new  currency  bill  per- 
mits National  banks  to  do  business  outside  the  United 
States  and  our  bankers  are  now  making  plans  to  take  ad- 
vantage of  this  permission.  Branches  are  being  opened  up 
in  South  America ;  but  are  they  being  opened  up  by  the  First 
National  Bank  of  Podunk,  with  a  capital  of  $100,000?  Cer- 

20 


tainly  not ;  they  are  being  opened  up  by  the  biggest  banks  in 
the  United  States,  banks  that  have  grown  big  through  con- 
solidation and  reconsolidation. 

The  Government  Itself  Favors  Adequate  Size. 

And  mark  this  well :  The  present  Administration,  in  its 
bill  creating  the  Federal  Reserve  Board,  specifically  pro- 
vides that  a  banking  concern  must  have  a  capital  and  sur- 
plus of  at  least  $1,000,000  before  it  may  even  file  an  applica- 
tion with  the  Federal  Reserve  Board  to  do  business  outside 
the  United  States.  And  mark  this  well  too:  The  bill  con- 
tains the  following  clause:  "The  Federal  Reserve  Board 
shall  have  power  to  approve  or  to  reject  such  application  if, 
in  its  judgment,  the  amount  of  capital  proposed  to  be  set 
aside  for  the  conduct  of  foreign  business  is  inadequate,  or  if 
for  other  reasons  the  granting  of  such  application  is  deemed 
inexpedient."  Another  part  of  the  bill  provides  that  for- 
eign business  may  be  done  "under  such  conditions  and  under 
such  regulations  as  may  be  prescribed  by  said  Board." 

We,  therefore,  now  have  a  condition  in  this  country 
where  large  banks,  with  the  approval  of  the  Federal  Reserve 
Board,  may  go  abroad  and  establish  branches,  but  they  must 
do  it  under  the  Federal  Board  which  has  the  power  to 
regulate  and  control  them ;  and  it  is  specifically  provided 
not  only  that  they  must  have  a  large  capital  but  that  the 
amount  of  capital  set  aside  for  the  conduct  of  the  foreign 
business  must  be  adequate  for  such  business.  Special  em- 
phasis is  placed  on  the  fact  that,  above  all  things,  the  capital 
must  not  be  inadequate,  for  if,  in  the  opinion  of  the  Board, 
it  is  inadequate  a  foreign  branch  cannot  be  established, — thus 
clearly  showing  that  the  lawmakers  were  keenly  alive  to 
the  necessity  for  a  large  capital  in  order  to  successfully 
conduct  a  foreign  banking  business. 

How  short-sighted  and  inconsistent  for  our  politicians  to      / 
take  the  position  that  this  method  of  handling  our  banking  «/ 

21 


business  is  correct  and  then  refuse  to  apply  the  same  method 
to  our  business  operations !  They  have  given  a  Federal 
Reserve  Board  power  to  organize  and  regulate  foreign 
branch  banks,  but  will  not,  in  the  matter  of  business,  adopt 
an  equally  constructive  program;  and  yet  it  is  infinitely 
more  important  that  we  find  an  outlet  for  our  crops  and 
manufactured  products  and  find  it  on  a  large  scale  than 
that  we  find  an  outlet  for  our  money  on  a  large  scale. 

Consolidation  in  Business  and  Our  Foreign  Commerce. 

The  present  Administration,  of  which  Mr.  Gregory  is  a 
part,  gives  the  Federal  Reserve  Board  the  power  to  establish 
large  banks  abroad  and  the  sole  power  to  fix  the  minimum 
amount  of  capital  that  must  be  employed;  and  these  banks 
are  not  required  to  grow  naturally;  they  can  acquire  their 
size  by  consolidation.  When  some  American  business  men 
got  together  and  organized  a  company  to  go  abroad  and  com- 
pete for  the  farm  implement  business  of  the  world  there  was 
absolutely  no  law  or  Federal  Board  to  guide  them— 
no  Federal  body  to  which  these  men  could  go  for  counsel 
and  permission  as  to  the  size  of  the  company  to  be  formed ; 
and  so  the  only  thing  these  business  men  could  do  was  to 
use  their  own  judgment,  go  ahead  and  do  the  best  they 
could.  They  went  ahead  and  organized  such  a  company, 
and  in  ten  years  developed  a  foreign  business  of  over  $50,- 
000,000  a  year. 

During  this  time  politicians  were  accusing  the  company 
of  all  sorts  of  heinous  crimes.  With  the  entire  co-opera- 
tion of  the  company  the  Bureau  of  Corporations  began  an 
investigation.  This  was  begun  during  the  Roosevelt  Admin- 
istration, but  before  it  was  finished  during  the  Taft  Admin- 
istration the  company  was  pounced  upon  by  the  Govern- 
ment and  a  suit  was  filed,  charging  the  company  with  all 
sorts  of  immoral  and  improper  conduct.  The  officers  re- 
peatedly asked  the  Government  to  point  out  wherein  the 

22 


company  was  objectionable.  They  repeatedly  visited  Wash- 
ington seeking  light,  and  there  was  no  light.  The  case 
dragged  itself  through  the  courts  and  all  these  charges  were 
wholly  disproved  and  thrown  out;  and  now  comes  another 
Attorney  General,  of  a  different  political  party,  who,  while 
openly  admitting  that  the  company  has  done  nothing  wrong 
and  that  no  one  is  complaining,  prays  for  the  destruction 
of  the  company  solely  on  the  ground  that  under  the  Sher- 
man Law  it  was  illegally  organized. 

Constructive  Federal  Legislation  the  Remedy. 

I  ask  you  gentlemen,  with  all  the  earnestness  I  possess, 
is  it  not  high  time  that  the  sober  common  sense  of  not  only 
the  American  business  world  but  the  entire  American  people 
was  aroused  on  this  subject?  Is  it  any  wonder  that  business 
men  are  bewildered?  It  is  unthinkable,  unbelievable  that 
our  people  are  demanding  mere  legal  form  rather  than  actual 
moral  substance. 

The  present  condition  is  intolerable,  impossible.  Is  it 
not  time  that  we  stopped  deceiving  ourselves,  stopped  quib- 
bling about  legal  technicalities,  stopped  resorting  to  make- 
shifts? 

Why  delay  any  longer?  Why  not  admit  that  the  object 
of  the  framers  of  the  Sherman  Law  in  striking  at  private 
monopoly  and  restraint  of  trade  was  commendable;  that 
\ve  want  this  principle  recognized  and  maintained  in  our 
business  life ;  but  that  we  want  a  great  deal  more  which  the 
law  as  it  stands  does  not  and  cannot  give  us.  It  must, 
therefore,  be  repealed,  rewritten,  or  buttressed,  not  by  such 
makeshifts  as  the  Clayton  "Muddle"  Bill  or  the  impotent 
Federal  Trade  Commission  Act,  but  by  a  clearly  defined 
piece  of  constructive  legislation  that  will  place  the  regula- 
tion and  control  of  great  interstate  and  international  indus- 
trial concerns,  and  their  right  to  exist,  in  the  hands  of  our 
Federal  Government. 

23 


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